2nd Quarter 2011 Benefits Corner

2ND QUARTER, 2011 BENEFITS CORNER

As we know, medical costs are increasing. In 2010 they rose approximately 10 percent and are expected to rise a similar percentage in 2011. In addition, we are seeing hikes in the utilization of medical care, especially with drugs. These increases directly affect medical insurance premiums.

In this article I will concentrate on prescription drugs because of their increasing impact on overall medical costs. Why are prescription drugs expensive? One of the major costs of drugs is the research and development (R&D) conducted by pharmaceutical companies.

Another is the promotional activity to educate the medical community about their products and advertisements to make them known to the public. Pharmaceuticals also face a timeline to recoup their development and other costs before their drug patents expire and less expensive generic versions are made available by their competition.

Drug Available to Public Limited by Clinical Trials

Patents issued by the U.S. Food and Drug Administration generally last 20 years. But this includes the period of clinical trials. So, as a result, a drug only may be available to the public for 8-10 years. Rather than allowing patents to expire, pharmaceutical companies will consider reengineering drugs to treat other medical conditions in an effort to obtain new patents.

As mentioned earlier, R&D is generally very expensive. Typically, the more complex and elusive a disease or medical condition, the more extensive the R&D. Pharmaceuticals must also consider the commercial viability of a drug if it's brought to the market.

If a disease or medical condition is elusive and complex, the development costs will generally be extensive. And if it affects a relatively small segment of the population, the drug would be quite expensive to purchase. It should be noted that development costs include clinical trials, which are necessary to determine the short and long term effects of a drug.

FDA Eager to Make Drugs Available Sooner

Pressure is being placed on pharmaceuticals and the FDA by the public to make drugs available to them sooner. The drug companies usually are willing to accommodate the public because they have a longer period to profit from the sale of a drug. However, an abbreviated period has risk because clinical trials are shortened. The result: the drug companies may not be aware of the medium to longer term side effects of a drug. This is probably more important with a medication that was developed to treat a complex medical problem.

Litigation and Adverse Effects of a Drug

I feel that adverse life-threatening effects of a drug most likely have resulted from shorter time trial periods that have led to litigation, especially class-action lawsuits. In some cases the judgments resulting from class-action have been extensive with major adverse financial impacts on companies. Based on the aforementioned, you can see there are extensive costs and risks in making a drug available.

Some Factors Related to a Drug Marketed in the U.S.

As mentioned earlier, the development and other costs related to a drug are factored into the price of a medication. In the case of a drug marketed in the U.S., the price includes the cost of R&D. However, it is my understanding that these costs typically are not passed on to consumers where a drug is marketed overseas. I have been led to believe they take this position because of their inability to otherwise sell their product. Obviously, this has resulted in controversy and financial hardship for many U.S. consumers, especially individuals without medical insurance or Medicare Part D coverage.

Overseas Drugs Are Not Without Risk

How can individuals with limited financial means, who do not have insurance, afford to purchase expensive drugs? In some cases they simply go without their medications. In other cases they consider buying their drugs over the internet from overseas distributors. While the advertised price of an overseas drug may be low it is not without risk.

An imported drug could contain the wrong active ingredient, too much or too little of the correct active ingredient or a dangerous ingredient. Even when a drug is legitimately made overseas the formulary can be different because of local requirements. Any of these options could be fatal or result in costly medical care. Anyone considering purchasing a drug from outside the U.S. should first contact the FDA. Their phone number is: 888-INFO-FDA. Finally, unless a drug is approved by the FDA, most medical insurance - including Chevron's medical plans and Medicare Part D - will not cover a medication.

How to Obtain Medications at Reasonable Cost

If purchasing drugs from overseas is a problem, how can individuals obtain their medications at a reasonable cost? Fortunately, there are alternative ways for those of limited financial means to obtain their medications. These include the following:

§Pharmacy-Based Discounts: These typically are offered by large chain stores on common generic drugs. Such stores include Wal-Mart, Target, Sam's Club, Costco, etc.

§Pharmacy-Based Medication Discount Clubs: Some independent pharmacies will offer prescription membership cards for a fee that will entitle card members to receive discounts on prescriptions.

§Pharmaceutical Company-Sponsored Discount Programs: Many pharmaceuticals offer free or discounted medications to individuals with limited incomes or without insurance. To discover if a company makes this available, check their website and search for a Patient Assistance Program. For example, Johnson & Johnson and Pfizer offer these programs.

§Carl McCain Memorial Foundation: It is an Oil Industry sponsored program that helps individuals of limited financial means with medical expenses. Application must be made to the Foundation. We hope to be able to post the application on CRA's website.

§Medicaid: This is a state/federal sponsored program for individuals with low incomes and minimal assets. Application must be made to the state agency that handles this program. Please note that, with financial cutbacks in many states, drug coverage may be limited. For further information, check

I hope you find this article informative. In a future Benefits Corner I hope to be able to cover medical care outside the United States since this has been mentioned in publications as a cost effective way of receiving medical care.

In closing, I would like to remind everyone that our Advanced Care Planning booklet is available on CRA's website - www.chevronretirees.org. A limited supply of printed booklets has been shipped to local CRA chapters. The printed booklets are generally intended for members who do not have access to computers.

This website is managed by the Chevron Retirees Association, which is not a subsidiary of Chevron Corporation but an independent organization of retired employees of Chevron or its predecessor companies.